Meta Shares Are Down 12% Since Earnings. Is the Stock a Buy?

Meta Platforms released its third-quarter earnings report on Oct. 21. Here’s Morningstar’s take on Meta’s earnings and stock.

Key Morningstar Metrics for Meta Platforms

• Fair Value Estimate
  : $850.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Meta Platforms’ Q3 Earnings

Meta reported third-quarter results that included 26% top-line growth to $64.6 billion and adjusted operating margins contracting 500 basis points to 35%. Rising artificial-intelligence-related costs continue to drive the margin contraction. Meta expects fourth-quarter sales to grow 21%-27%.

Why it matters: Investors have been concerned about Meta’s ability to monetize its AI investments. We see momentum in core advertising, as well as adoption of Muse (both on the consumer and enterprise side), as early signals that the firm’s AI playbook is working.

• In the core ads business, we saw a healthy growth mix from both impressions, up 10%, and price, up 14%. We see AI-driven content and ad-tech improvements driving this strong growth, and we believe they’re increasing Meta’s wallet share in the broader digital advertising market.
• While still early, with management calling out 10 million users in the first month, we think Muse agents, both personal and business, could help create new monetization streams for Meta. We also see agents as expanding Meta’s total time spent across its services over time.

The bottom line: Shares are down 12% since the report, as a $25 billion equity raise has stoked concerns about the sustainability of AI investments, overshadowing otherwise solid results. We maintain our $850 per share fair value estimate for wide-moat Meta and view the stock as undervalued.

• We reiterate our view that Meta has a multivariate AI monetization opportunity, and that it can monetize via ads, selling intelligence to customers via Meta Enterprise, selling excess compute to other AI labs, and capturing agentic commerce revenues via revenue sharing.
• While agentic commerce take rates, AI subscription sales, and enterprise revenue are not included in our model, we believe the firm is laying the groundwork to scale these revenue streams, which could provide more revenue upside opportunity versus our estimates.

The following are excerpts from Morningstar’s company report on Meta.

Fair Value Estimate for Meta Platforms

With its 4-star rating, we believe Meta’s stock is moderately undervalued compared with our long-term fair value estimate of $850 per share, which implies a 2026 adjusted price/earnings multiple of 26 times and an enterprise value/adjusted EBITDA multiple of 13 times.

We forecast Meta’s sales growing at a 22% compound annual growth rate for the next five years, spearheaded primarily by an increase in average revenue per user, with user growth also chipping in. On advertising, we believe Meta has a strong monetization opportunity ahead of it in Asia and the rest of the world.

We additionally expect Meta to leverage its AI data center buildout by either renting out excess capacity to AI labs or selling intelligence to external customers via Meta API and Muse Code. We expect a combination of these businesses to grow from practically $0 in 2026 to $40 billion by 2030.

Read more about Meta Platforms’ fair value estimate.

Economic Moat Rating

We believe Meta merits a wide economic moat rating due to the firm’s intangible assets and the potent network effect around its Family of Apps business. While the firm’s Reality Labs segment continues to hemorrhage cash, we believe the FoA’s strong competitive advantages will likely allow the firm to generate returns over its cost of capital over the next two decades.

In our view, the firm could leverage AI to improve its ad tech business, improving advertiser ROI and encouraging more ad dollars to be spent on its platform. Further, we see potential long-term opportunities for the firm to sell excess compute to external labs as well as sell its models to external customers via Meta Enterprise or Meta API. One important caveat is that Meta has no track record of running an enterprise business.

We believe Meta’s Reality Labs business merits a no moat rating. While the firm’s investments in metaverse and virtual/augmented reality could lead to profitable growth in the future, the segment continues to burn capital for Meta.

Read more about Meta Platforms’ economic moat.

Financial Strength

We view Meta’s financial position as solid. The firm closed fiscal 2025 with cash and cash equivalents of $82 billion, more than offsetting its debt balance of $59 billion.

While the firm’s investments in AI stand to increase its capital expenditure considerably over the next few years, the advertising business remains a cash-generating machine, with cash flows from this business continuing to fund the AI investments.

Read more about Meta Platforms’ financial strength.

Risk and Uncertainty

We assign Meta an Uncertainty Rating of High. We believe the company’s investments in unprofitable ventures such as generative AI and Reality Labs add a layer of uncertainty around its business, even as its large and stable advertising business continues to generate substantial cash flows in our forecast.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Meta’s advertising business will likely suffer. Also, the broader impact of social media on its users’ mental health, especially that of teenagers, is also a pertinent ESG risk for Meta.

Read more about Meta Platforms’ risk and uncertainty.

META Bulls Say

• Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms as well as a secular increase in digital advertising spending.
• Meta’s massive multi-gigawatt AI infrastructure and custom silicon portfolio provide significant optionality, with the firm able to leverage this compute internally and potentially sell excess compute.
• The firm has an opportunity to drive more ad inventory growth, leveraging nascent surfaces such as Threads and agentic AI features, while sustaining high monetization across mature formats like Reels

META Bears Say

• Meta’s investments in Reality Labs and generative AI stand to lose the firm billions of dollars annually, taking some of the shine off its overall business.
• The firm faces a dynamic regulatory and legal landscape, with recent adverse state court rulings regarding teen addiction and platform design opening the firm up to more legal challenges, fines, and regulation across the globe.
• Meta’s continued investments in AI will likely be margin-dilutive in the near term as increasing depreciation costs eat into operating margins. Monetization of these investments remains unproven beyond AI-driven improvements in the firm’s core advertising business.

This article was compiled by Colin Laidley.